Good news for all iPod Touch users especially those with MC models, that comex has released the spirit jailbreak that amazingly works on all apple devices i.e. iPhone, iPod Touch and iPad. Spirit provides an untethered jailbreak which means you don’t have to connect to iTunes anymore every time you reboot your iPod Touch and other Apple devices. Unfortunately MC model users have been living with tethered jailbreak for long time, but spirit has put them out of their misery. Here’s a step by step guide to jailbreak your iPod Touch OS 3.1.3. Note: You can jailbreak iPod 2G and 3G running latest OS using this tool.
Step 1: Make sure you have upgraded iPod Touch to the latest OS i.e. OS 3.1.3. If you are already using tethered jailbreak, you need to restore the device first.
Step 3: Connect iPod Touch to the computer and run Spirit. However if you’re using Windows 7 or Vista, you need to run it as windows 98 compatibility mode, also run this program as administrator (you can find these options by right clicking spirit.exe and going in Properties tab) After running Spirit, a small dialog box will appear, it will automatically detect the device and the OS, click on Jailbreak button
Step 4: Wait for sometime while it jailbreaks your iPod Touch. You will appreciate the a beautiful colored screen while running jailbreak process. This jailbreak is better than blackra1n by geohot. After the process is complete your iPod touch will reboot
Step 5: That’s it, you are now using untethered jailbroken iPod Touch. Cydia will come pre-installed.
See requirements and other stuff on official Spirit page.